Believe in the Bottom

Three key forces are at work in this market right now, Cramer said during the first of what will be two weeks worth of midday shows.

The continuing decline in oil, the resultant rebound in retail (as lower gas prices make consumers less hesitant to drive to the mall) and a rally in the financials are dictating the pace on Wall Street – especially the financials.

Despite all the persuasive talk bears that the banks are worse off than they were at the market’s July 15 lows, Cramer won’t bite. Just look at names like Bank of America, Lehman Brothers, Wachovia and Washington Mutual . They’re all up during that time period. So are Fannie Mae and Freddie Mac . Even Citigroup and American International Group have gained ground. And this doesn’t even include bond insurers Ambac and MBIA .

Cramer said he’s convinced we won’t break through those mid-July lows. Of course, that doesn’t mean we’re in for an immediate and bullish move to the upside. There are still at least a few potential pitfalls the market could see:

  • A Fannie-Freddie bailout by the government, resulting in a serious damage to their common stock.
  • Washington Mutual lacking funds to keep the doors open
  • A $15 billion to $20 billion financing move by AIG to survive this period
  • General Motors and Ford common shares crushed even further
  • No housing bottom until the end of 2009
  • One or two homebuilders going under

Those are all very real possibilities, Cramer said. But we haven’t taken out the lows yet. Instead commodities have declined, inflation’s less of a concern, the Federal Reserve’s in a place to cut, rather than raise, rates, Merrill Lynch and Lehman Brothers are starting to pull themselves out of the hole. There’s some good here that can’t be ignored.

No doubt this is a tough market. And a strategy for it isn’t anywhere near as simple as shorting the bad and going long on the good. But the one thing Cramer said he is sure of is that those July lows will not be breached. Especially when it comes to aforementioned financials. The bears, he said, have to make a better case if they’re going to change his mind.

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